Posts
Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.
Tuesday, May 21, 2013
When Your Fund Changes Its Focus
Sometimes, exchange-traded fund sponsors hit investment gold. PIMCO’s insanely successful Total Return ETF (NYSE:BOND) comes to mind. That fund has amassed nearly $4.7 billion in assets in a little more than a year.
But sometimes ideas and funds are perhaps a little ahead of their time. (Anybody remember the Claymore/Clear Global Vaccine Index ETF? Or the Global X Fishing Industry ETF?)
Generally, funds die when they fail to attract enough assets and, in turn, don’t generate enough revenue for the underlying sponsor. Fund issuers will either close the fund completely or tweak the underlying index/portfolio to better suit investor needs.
For example, ETF manager WisdomTree has made it a habit to shift strategies of its funds after a few years if investors are bypassing them for other ETFs. The latest example of this was its Europe Hedged Equity (NYSE:HEDJ). In its previous life, the fund was a total developed-market fund, which included exposure to Australia and Japan. The portfolio has since narrowed its focus.
So, given the fact that the Sustainable North American Oil Sands ETF (NYSE:SNDS) has less than $5 million in assets, it’s not surprising that the issuer — Exchange Traded Concepts — is reworking the fund to attract more investor interest.
What is surprising is how it’s doing this.
I looked at SNDS when it launched back in June 2012. I mentioned that the ETF fell flat of its goals to track the performance of companies whose operations include production, refinement, midstream and provision of equipment/services in North American oil sands.
After the initial top holdings of oil sands producers, the remaining portfolio was divided among major integrated oil firms such as Exxon Mobil (NYSE:XOM) and PetroChina (NYSE:PTR). While these firms all do own oil sands assets and do have some bitumen production capabilities, those operations are a very small part of their overall business models.
At the end of the day, investors looking to SNDS specifically to get access to the Canadian oil sands would be getting the short end of the stick, as the fund’s performance would not be entirely tied to the oil sands market.
The market seems to have agreed with me, preferring other energy funds like the Guggenheim Canadian Energy Income (NYSE:ENY). SNDS has attracted only about $1.2 million in assets, and trades less than 1,000 shares a day. So it’s not surprising that Exchange Traded Concepts is changing the fund’s focus.
However, rather than beef up its energy exposure or broadening the ETFs mandate a bit, ETC has decided to completely go against the grain and make the ETF a vehicle to hold high-yielding closed-end funds.
Basically, it’ll be a fund of funds.
According to a new filing, SNDS will become the YieldShares High Income ETF — with the proposed ticker YYY — and track the ISE High Income Index. That index will invest in the top 30 U.S. exchange-listed, closed-end funds and could include exposure to equities, bonds of all stripes, preferred and convertible stock, commodities and REITs. The “new” YieldShares fund will cost a whopping 1.65% a year — including a 0.5% management fee — in expenses.
The fact that the Sustainable North American Oil Sands ETF is switching focus can serve as a lesson for future investors.
As much as I love ETFs, most of them are very “gimmicky.” They can be very powerful tools for the average Joe to construct a balanced and sophisticated portfolio. However, for every broad, marquee-named index ETF that actually deserves a place in your portfolio, there are 10 funds like the ALPS/GS Momentum Builder Asia ex-Japan Equities and U.S. Treasuries Index ETF (NYSE:GSAX). (Yes, that’s a real fund.)
Investors need to do their homework before they commit to a fund. SNDS promised oil sands exposure and came short of that goal. More importantly, there were more established funds that offered the same or better exposure to the “theme” it was trying to tackle.
Despite the fact that U.S. investors have about 1,500 ETFs to choose from, only the top three or four in each category have any real assets, trading volume and sustainability. For example, there are currently 27 different ETFs that focus on energy equities. Ranking them by assets, by about fund No. 7 on the list, both AUM and trading volumes drop off considerably.
While there are no hard-and-fast rules about how many assets a fund needs to have to be profitable and not at risk of closure, the bigger and more popular the better. Staying away from smaller products — which tend to be some of the most gimmicky — helps ensure that your fund will stick around.
As for the SNDS switch-over, Exchange Traded Concepts might have another flop on its hand. The proposed YYY will have to go up against the $461 million PowerShares CEF Income Composite ETF (NYSE:PCEF), which basically does the same thing as the YYY’s focus.
Perhaps it’s fitting that ETC chose a cursed ticker for the new fund. ETC will use the same ticker as the now-defunct Bear Stearns Active ETF — which only lasted six months before being delisted.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
Article printed from InvestorPlace Media, http://investorplace.com/2013/04/snds-switches-focus-completely/.
©2013 InvestorPlace Media, LLC
Get a 9% Dividend From This ETF
Given that the Fed’s zero-interest-rate policies aren’t going away anytime soon, many investors have turned toward the “exotic” to find yield. From convertible bonds to master limited partnerships, Wall Street has gone headstrong into these niches to produce new exchange-traded products for portfolios craving income.
And the latest ETF could be a doozy.
The ALPS US Equity High Volatility Put Write ETF (NYSE:HVPW) combines stocks and an options strategy, exploiting quick-darting equities in the hope of generating 1.5% in distributions … every 60 days.
While that might seem like a spam advertisement for penny-stock gains, the fund strategy seems sound, albeit risky.
By using options, investors can generate income, provide downside protection or produce exaggerated returns in rising markets.
However, for many investors, options strategies remain an elusive tactic. After all, concepts like spreads, collars and buy-write aren’t exactly commonplace or well-known with the average Joe. They can be confusing to execute properly or take large initial investments, making them out of reach for many portfolios.
Thus, it might pay to hire a professional … or at least track an index.
The first ETF products in the space — such as the PowerShares S&P 500 Buy Write (NYSE:PBP) — were designed to track basic options strategies like selling covered calls. By taking a relatively sophisticated tool and placing it in an ETF, more retail investors have the opportunity to use it in their portfolios.
Well, the new ALPS US Equity High Volatility Put Write ETF takes that sophistication up a few notches.
HVPW will track a portfolio of written put options on the largest-capitalized stocks that have listed options with the highest volatility.
Puts are a type of option that are used to provide the owner the right — but not the obligation — to sell the security at a set or “strike” price, on or before an expiration date. Traders who sell put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has the purchased the chance to sell stock to the put writer.
Selling — or “writing” — puts is a strategy that succeeds when the underlying stock stays flat or goes up. However, it can be very costly if the stock plummets, as the put writer could be forced to purchase shares of a stock at $100, when it has actually fallen to $50.
In return for providing this insurance — by essentially putting a price floor under a stock by writing the option — HVPW will collect a juicy fee.
HVPW will “write” 60-day listed put options on 20 different stocks, selling the right to buy them at roughly 85% of their price at the time. Basically, the fund is on the hook for the difference below a roughly 15% drop in price.
The ETF has chosen to focus on the companies with the highest volatility, as fast-moving stocks often have the largest premiums when it comes to option writing. This makes sense as the option’s strike price is more likely to be breached with a stock that swings wildly in price compared with a boring name whose share price rarely moves.
The fund holds exclusively T-bills — used as collateral — with top current put options written on biotech Alexion Pharmaceuticals (NASDAQ:ALXN), social media travel site TripAdvisor (NASDAQ:TRIP) and Chesapeake Energy (NYSE:CHK). The rest of the holdings are a virtual who’s who of momo names and traders’ delights, offering plenty of volatility and high option premiums.
The fund hopes to collect those outsized insurance premiums as they expire every 60 days and distribute 1.5% to investors after expenses. That works out to be a huge 9% dividend yield — if HVPW is successful at delivering its put-write strategy over the course of the year. A big deterrent could be those expenses, which run at a high 0.95%. Still, that’s pretty cheap considering how expensive and time-consuming HVPW’s strategy would be to undertake on your own.
The ALPS US Equity High Volatility Put Write ETF is an interesting alternative way to gain some hefty yield in a portfolio. Not many investors use put options to their advantage and the fund has basically democratized the strategy for the masses. Overall, the ETF should do well when markets are trending higher or sideways and provide some big distributions to investors.
However, it isn’t without its risks. HVPW could underperform in strong rallies and selloffs. That means the fund shouldn’t be the only source of yield in your portfolio. Think of it as a satellite play or yield-booster.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
Article printed from InvestorPlace Media, http://investorplace.com/2013/03/get-a-9-dividend-from-this-etf/.
©2013 InvestorPlace Media, LLC
Floodwaters Could Bail Out My Corn Call
Rain. It’s the one thing farmers across the parched Midwest wanted.
If you remember, last year’s record heat and the summer’s extreme dryness caused more than two-thirds of the Lower 48 to experience severe drought conditions. That lack of rain managed to cut corn production by 27% from early-season estimates; soybean prices surged; wheat prices jumped to a four-year high; and farmers collected a record $11.6 billion on insurance claims for damage to all crops in 2012.
Those drought-like conditions persisted into the New Year and made for some interesting conditions in the ag futures markets.
Well, it seems like the farmers are finally getting that much-needed rainfall. And then some.
Melting snowpack plus severe storms across the northern Midwest last week spurred flooding along rivers as far south as Tennessee. That flooding is causing huge headaches for farmers needing to get seed into the ground.
For investors, it could lead to opportunities and some redemption.
As the old adage says, “When it rains, it pours.” In this case it’s about 6 inches of precipitation in about two days. Storms over the past week across America’s Heartland have dumped gallons of water on the parched plains, only to oversaturate the dry land. That’s causing some major issues on the flooding front.
The surge of rushing water is quickly making its way down the Mississippi and Illinois rivers through their tributaries. According to meteorologists at AccuWeather, more than 150 areas were considered to be in the “flood stage” across the United States. This included 37 at “major” flood stages — almost all of them in the upper Midwest. The weather service designates regions as major when there will be “extensive inundation of structures and roads, and that significant evacuations are likely.”
The excessive rainfall and snow can only be seen a major slap in the face to region that has suffered from one of the worst droughts since the Dust Bowl. However, things continue to get worse. Some areas of the Corn Belt are scheduled to receive as much as 8 inches of snow this week as colder temperatures and wet weather persist.
All of this isn’t making for a good time for the ag sector.
While farmers had planned on planting one of the largest corn crops in decades — hoping to take advantage of high prices — that plan isn’t going so well. The excessive rain and flooding have pushed back plantings. Data from the U.S. Department of Agriculture shows that corn plantings in the largest U.S. producing states was only 2% complete as of April 14. That’s well behind last year’s pace of 16% at that time. And the USDA predicts that the floods will significantly reduce the overall available land for planting for this growing season.
Then there’s the issue with transporting those harvests.
About 60% of U.S. grain exports are moved via barges along the Mississippi River — making their way from growing regions in the Midwest to export terminals along the Gulf of Mexico. As such, the recent flooding is putting a crimp in that system. Various locks along the river have been closed due to high water levels and flooding. Another portion of the flooded Mississippi River was closed by the Coast Guard after 30 barges carrying grain broke free of their moorings and drifted away or ran aground.
Despite the wonky weather, corn and wheat futures have plummeted since my recommendation to buy back in February as investors digested the predicted record crop plantings. My argument then was that the market wasn’t fully taking into account the potential for additional severe weather throughout this summer.
Well, here’s that crazy weather that no figured would happen … even though the past three summers have been met with some kind of weather disturbance.
Given that plantings are now way behind schedule and with more rain on the way, investors looking to higher corn prices may finally get their wish. Already, spot prices for barge shipments for corn at Gulf of Mexico export terminals surged by more than 10 cents a bushel to hit a one-month peak. Eventually, those price increases will start to trickle down the line.
Depending on bad the fallout of the flood is and just how “smaller” the corn crop ends up being, we could see a repeat of last summer’s record highs.
For investors, that makes the Teucrium Corn ETF (NYSE:CORN) a potential buy. Tracking a basket of three futures contracts for corn — specifically the second-to-expire, third-to-expire and the contract expiring in the December — is the easiest and only pure way to go to play the flood’s fallout. While it hasn’t been a good performer this year so far, investors could finally see some hefty gains as the ag sector moves from drought to excess rain.
I may have been early with my recommendation, but investors may still win out in the end.
At the time of publication, Levitt had no positions in the securities mentioned.
Article printed from InvestorPlace Media, http://investorplace.com/2013/04/floodwaters-could-bail-out-my-corn-call/.
©2013 InvestorPlace Media, LLC
3 Trends That Sent Energy Stocks Higher in Q1
With the first quarter coming to a close, it’s time once again to turn back the clock and take a look at the biggest stories affecting the energy sector. After all, you can’t know where you are going unless you learn from the past.
Overall, the energy sector — like most of the economy — was plagued by geopolitical events. The sequester in the U.S., issues in the Middle East and European debt woes continued to impact the many companies drilling, extracting and refining crude oil.
Still, the global economic situation seems to be strengthening, which in turn means rising demand and steady commodity pricing. That helped push shares prices for energy stocks to new highs in the first three months of 2013.
With that in mind, let’s take a look at three big trends in the sector from Q1, along with what to expect in the coming quarter.
One of the biggest trends energy investors faced during the first quarter was the increased amount of shareholder activism. Given the sector’s continued growth, many hedge funds, pensions and institutional investors targeted energy firms not “proving their mettle.”
These investors hope to improve their own — and smaller retail investors’ — positions by unlocking value at struggling firms. Many have pushed for master limited partnership (MLPs) spin-offs, special dividends, asset sales and complete board redesigns.
Already we saw billionaire Carl Icahn shove Chesapeake Energy (NYSE:CHK) CEO and founder Aubrey McClendon out the door … as well as push CVR Energy (NYSE:CVI) to unlock value via refining spin-off CVR Refining (NASDAQ:CVRR).
Likewise, hedge funds TPG-Axon and Mount Kellett Capital are hoping to emulate Icahn’s success by ousting Tom Ward from the top position at SandRidge Energy (NYSE:SD).
Perhaps the biggest activism story of all, though, has been at beleaguered integrated giant Hess (NYSE:HES). In the middle of its own transformation to become a pure E&P player, the firm was targeted by activist hedge fund Elliott Management — one of the its largest shareholders — to reshape the company.
Elliott accused the board of “poor oversight,” and said that the company’s management was responsible for more than a “decade of failures” that caused Hess’s stock price to flounder.
While the proxy fight at Hess is just beginning — and the company claimed its recent changes had nothing to do with Elliott’s criticisms — it highlights the fact that activism in the energy sector will be a pervasive trend for the foreseeable future.
The pricing dynamic between West Texas Intermediate (WTI) and Brent crude continued to be a boon for those firms that refine petroleum products. These downstream firms have been able to take advantage of lower-priced WTI crude oil, so crack spreads for refined products remain at highs (although that spread has dwindled over the last few weeks). And the wider the spread between crude oil and refined products, the more profitable refiners are.
For example, for both integrated majors Exxon (NYSE:XOM) and Chevron (NYSE:CVX), earnings made from refining and chemical operations drove their near-record profits. By using the cheaper feedstock, both Exxon and Chevron were able to increase margins at their downstream units.
Of course, it’s not just the majors that are benefiting from this trend.
The various independent refiners like Valero (NYSE:VLO) and Tesoro (NYSE:TSO) have entered a new renaissance as they have been able to take advantage of the pricing trend. That renaissance has helped push up share prices, boost cash flows and make the refiners dividend-paying machines.
While new pipelines, railroad tankers and crude terminals have reduced the huge spread in recent weeks, there still is a wide enough discount between the two oil benchmarks. More importantly, as unconventional drilling revolution continues to unlock a dearth of shale oil from regions like the Bakken or Eagle Ford, the refiners should be able generate big margins for years to come.
It’s been almost three years since BP’s (NYSE:BP) Deepwater Horizon disaster and the fallout from the worst oil spill in history may finally be coming to an end. The trial over liability for the disaster began Feb. 25 and will focus on determining whether one or more of the companies acted with willful or wanton misconduct or reckless indifference — the legal requirement for establishing gross negligence.
So far, BP has lost bids to remove it from the findings and could be shelling over more than $17.6 billion in damages. Likewise, contractor Halliburton (NYSE:HAL) and driller Transocean (NYSE:RIG) remain on the hook for damages.
But overall, the start of the trial at least represents a big step towards closer in the Gulf. And on the other side, production volumes continue to rise as the drilling moratorium enacted after the spill has been lifted. Big finds from firms such as Chevron and Anadarko (NYSE:APC) are breathing new life into the aging Gulf.
For investors, many of the trends that began in the first quarter — and the fourth quarter of 2012 — should continue into the next one. Rising activism and M&A activity will only increase as the energy sector strengthens and larger investors target weaker producers.
At the same time, much of that strength will come from unconventional sources in the ocean’s deep and North America’s shale formations. Onshore regions like the Marcellus and Eaglebine will continue to be game changers for the industry, while the deepwater in the Gulf will continue to transform the “dead sea.”
Finally, any return to sense of normalcy in the global economy will boost demand and prices for all varieties of energy commodities. That will benefit firms all across the energy spectrum — from the smallest wildcatter to the largest integrated giant.
All in all, the upcoming second quarter promises to be a doozy for investors in the energy sector — much like the first one.
As of this writing, Aaron Levitt did not own a position in any of the aforementioned securities.
Article printed from InvestorPlace Media, http://investorplace.com/2013/04/3-trends-that-sent-energy-stocks-higher-in-q1/.
©2013 InvestorPlace Media, LLC
Subscribe to:
Posts (Atom)